Key Differences in Chapter 7 and Chapter 13 Bankruptcy in New York
Bankruptcy can be a complex legal process, and understanding the differences between Chapter 7 and Chapter 13 bankruptcy is crucial for residents of New York. Each type serves distinct purposes and is suitable for varying financial situations. Below, we explore the key differences between these two bankruptcy options.
1. Type of Bankruptcy
Chapter 7 bankruptcy, often referred to as liquidation bankruptcy, allows individuals to eliminate most unsecured debts, such as credit card debt and medical bills. In contrast, Chapter 13 bankruptcy is known as a reorganization bankruptcy, which enables individuals to create a repayment plan to pay off their debts over three to five years while retaining their assets.
2. Eligibility Requirements
Eligibility for Chapter 7 bankruptcy requires passing the means test. This test determines if an individual's income is low enough to file under Chapter 7. If someone does not meet the income requirements, they may need to consider Chapter 13. On the other hand, Chapter 13 bankruptcy requires a stable income, as applicants must demonstrate their ability to adhere to a repayment plan.
3. Impact on Assets
In Chapter 7 bankruptcy, non-exempt assets can be sold to pay creditors, potentially leading to the loss of valuable property. However, New York provides various exemptions that protect certain assets, such as a primary residence (up to a certain value), vehicles, and personal items. Conversely, Chapter 13 allows individuals to keep their assets while making monthly payments to creditors based on their repayment plan.
4. Duration of Process
The duration of Chapter 7 bankruptcy is relatively short, often completed within three to six months. This process is typically straightforward, involving filing the petition and attending a meeting with creditors. In contrast, Chapter 13 bankruptcy can last three to five years, as individuals must stick to the agreed-upon repayment plan during this time.
5. Impact on Credit Score
Both Chapter 7 and Chapter 13 bankruptcies negatively impact credit scores. However, Chapter 7 generally has a more severe effect due to its quicker discharge of debts. A Chapter 7 bankruptcy can remain on a credit report for up to ten years, while a Chapter 13 will stay for up to seven years. This difference can influence future credit applications and interest rates.
6. Discharge of Debts
In Chapter 7 bankruptcy, most unsecured debts are discharged after the process is completed, allowing individuals to start fresh. However, certain debts, such as student loans and child support, are generally non-dischargeable. In Chapter 13, only the remaining unsecured debts after completing the repayment plan can be discharged, which may not eliminate all debts.
7. Filing Fees and Costs
The initial filing fees for both Chapter 7 and Chapter 13 are relatively similar, but the overall costs may differ. Chapter 7 may be less expensive overall due to its shorter duration, while Chapter 13 can incur additional expenses, including attorney fees for managing the repayment plan over several years.
Conclusion
Understanding the key differences between Chapter 7 and Chapter 13 bankruptcy can help individuals in New York make informed decisions based on their financial situations. It’s advisable to consult with a bankruptcy attorney to discuss options and determine the best course of action for financial relief. Whether choosing to liquidate debts or create a repayment plan, knowing these distinctions can be beneficial for reclaiming financial stability.